GIVING BONUS THE AMERICAN WAY

Synopsis: Communication For Productivity Letters written to some 7500 Workers / Managers / Union Leaders, following a period of strike / Go slow / Murders (1979 - 1987), at Mumbai factory of Larsen & Toubro Ltd. This direct / open / honest communication led to a remarkable atmosphere of trust between Workers and Management, which, in turn, increased productivity at 3% per year (ave).

March 31, 1987

To:

Dear Friends

GIVING BONUS THE AMERICAN WAY

The Idea of giving bonus to employees is catching-up in America (may be they imported it from India!).

But as true Americans would do with anything, they have improved upon  it!

( 1 )   Workers must first accept a wage-cut of 25%!

( 2 )   Then workers must keep the LABOUR COST at 10% of sales.

( 3 )   And If the workers, succeed in achieving both, then they would get a bonus as follows :

If the Labour-cost as % of sales	Bonus will be equal to
( a ) Remain at Target level of 10.0%	1.0% of Sales
( b ) Go down to             9.5% (Better than target)	1.5% of Sales
( c ) Go up to                 11.0% (Poorer than target)	0.5% of Sales

At this stage, I cannot help reminding you all that our own

              Manpower cost____     =  28.1%  (1985-86)        

Powai + Madh Output

And I cannot help feeling that there is an URGENT NEED to Import this vital managerial KNOW-HOW from America to save our Industries!

That is right. The Industry that started this_new system in America was about to be wiped out.

The company Is called A&P.

They are in the business of selling,           
 

·     food articles (grocery/vegetables)      

·     milk products            

·     soft drinks       
     

·     small household Items.

They do not manufacture anything.  They Just sell (like our Bania and the Bhajiwala).  But even they face severe competition in their business.

So severe that,

·     In 8 years, the company had to close down 70% of its stores!

·     The company made  losses for 4 years continuously!

·     Worker morale became very low.

DESPERATE ACTION      
      

In desperation the company Introduced the earlier-mentioned BONUS-SCHEME on experimental basis in 60 stores after negotiating It with UFCW (the Labour-Union).

RESULTS?

( I )    EFFECT ON WAGES

( 2 )   EFFECT ON LABOUR COSTS   

( 4 )   EFFECT ON EXPANSION

Purchased 65 loss-making Food-stores from a competitor (BATES INC.) on condition that UFCW (Labour-Union) would accept Bonus-Incentive!

( 5 )   EFFECT ON PROFITS (OPERATING)

UNION STARTED IT ALL!

It seems the whole idea came from the, Union! In 1981, when A&P closed down 81 stores (In America they don't need Gov+.permission), the UFCW  (the labour-Union) purchased 6 of those stores which are still employee-owned!

This gave an Idea 'to the Management. Why not  link BONUS to LABOUR-COST? This would be a true profit-sharing.

A&P Chairman, James Wood says,

"The Idea of people getting a piece of what they are trying to achieve, has always appealed to me enormously".

WHAT DOES THE UNION THINK?

"This (scheme) involves putting part of our  wages at risk - something we would not ordinarily volunteer to do,

but, 

Intense competition and mergers In the retail food business have spread Labour concessions (wage-reductions) to many stores.  If this continues, the A&P profit sharing  scheme may, one day, become an Industry-standard".

ANY LESSONS FOR US AT POWAI?

Plenty.

How long can we carry-on the way we are doing?

*Manpower cost Includes :  

All monthly cash payments + Co.'s contribution to PF, ESIS + Bonus + Ex-Gratia + LTA  + Medical reimbursement + Cost of Canteen, Dispensary, Transport & Welfare facilities

After studying these charts, I wonder whether we need to travel halfway around the world to America In search of know-how on wages and bonuses!

Much nearer home, we know how bitter medicine has brought back health  to Jaipur Metal & Electricals Limited!

Question is,

"Shall we display the courage or close our eyes like an Ostrich and bury our head In the sands?"

Hemen Parekh